The best gift

The holiday season is quickly drawing to a close, and I hope yours has been full of peace, joy, and all the good things you were hoping it would be. I hope you were able to give and receive the gifts you wanted, and that meant something special to you. I especially hope that you were able to give some thought to one of the best gifts you will ever be able to give yourself and your family: your own home.

A home is a place of your own where you can raise your family, share with friends and feel safe and secure. Other benefits for homeowners include better physical health, higher lifetime income, higher student test scores, and lower teen delinquency.

Reduced prices and low interest rates have placed housing affordability at its highest but rates have started inching up in the past few weeks which will directly result in higher payments.

Credit, debt ratios and income are the limiting factors that could be keeping you from taking advantage of these opportunities. Isn't it time you found out where you stand to buy a home?

The benefits of talking with a qualified mortgage officer and pre-approval are without question. It saves time, money and removes the uncertainty of not knowing. The direct benefits include:

•Amount the buyer can borrow - as interest rates rise, the amount decreases

•Looking at the "right" homes - price, size, amenities, location

•Find the best loan - interest rate is tied to credit score; do you qualify for the best rate?

•Uncover credit issues early - time to cure possible problems; 90% of credit reports have errors

•Bargaining power - helps negotiate price, terms and timing

•Close quicker - verifications have been made; takes less time to close

Call me for a recommendation and a list of what you need to share with a loan officer. It may be the best gift you give your family.

Each day comes bearing its own gifts. Untie the ribbons. ~Ruth Ann Schabacker

Buy low, sell high . . . and lose

We all know the drill, don’t we, that the key to success with financial investments is to “buy low and sell high”? So, since the majority of the predictions floating around right now are that real estate prices are going to continue to drop for another 12 to 18 months, we should wait that long before we buy any real estate. Makes perfect sense, doesn’t it?

Well, not necessarily, and especially with real estate.

The important thing to keep in mind here is that there is the difference between “price” and “cost.” For an investment like real estate, which is usually leveraged with a mortgage, you need to be more concerned with the cost than the price. This is such an important concept that lenders are required to disclose the total cost to the buyer – as accurately as possible – and give the buyer the opportunity to back out of the deal. If it turns out that the estimated cost was not accurate enough, lenders are now required to recalculate it and disclose it again.

So what is the difference between price and cost? Simply put, the price of the house is only part of the cost. Over and above the price, you have to pay for a lot of other stuff. In real estate, most of the “other stuff” is interest on the loan that was taken out to pay for the house. There are other pieces and parts included in “cost,” but the interest on the loan is the most important part.

The thing about interest is that little changes in the rate can have dramatic effects on the true cost of the house. Let’s imagine you’re buying a new home, and the 30-year loan will be for $350,000. If the interest rate is 4.5%, the principal and interest payment will be $1,773.40. If the interest rate increases only half a percentage point to 5%, the payment will be $1,878.88. An increase of only half a percentage point will cost you over $100 every month for the next 30 years.

Now here’s the thing: interest rates are rising now.

As of today, average 30-year mortgage rates are over two-tenths of a point higher than they were last week. In other words, if you closed that $350,000 loan today at the average rate (4.83%), your payments would be $1,842.68, or $46.33 higher than if you closed at last week’s rate (4.61%, with a payment of $1,796.35).

But what about the falling price of the house? Won’t it offset the increase in interest? Only if the decrease in value is substantial. To expand on that last example, the price of the home would have to fall to about $341,200 to offset that rate increase of half a point. In other words, the price would have to fall more than 2.5% in the same week to come out even with the increase in the interest rate.

Real estate values are not falling that fast, and are not expected to in the coming months. Most predictions I’ve seen are in the range of 5 – 10 % spread over the next 12 months or so, but the falling prices are not nearly as important as the rising interest rates.

If you are in the market for a new home, it is time to make a decision. Choose wisely.

The essence of strategy is choosing what not to do. -- Michael Porter

The good news is building

It’s been about two years since the bottom fell out of the economy. Since then, the good economic news has come in dribs and drabs, and has generally been lost in the torrent of bad news. Slowly but surely, however, the good news is building in its frequency and magnitude. The National Association of REALTORS (NAR) recently released the updated Pending Home Sales Index, and it is some of the best news we’ve seen lately.

The index has been on an upward trend since hitting the bottom last June, and the October index was 10.4% higher than the September figure. That’s a lot of positive change in just one month. That is good news, indeed, even if the index is still quite a bit lower than it was in October 2009 (which was artificially inflated by the tax credit).

This index is a leading indicator of the state of the economy, and is based on the number of homes that are under contract, but not yet closed. It is pretty closely related to the number of actual closings two months later. It is expected that the index will continue to climb into 2011. According to Lawrence Yun, the chief economist for NAR, “the housing market clearly is in a recovery phase. . ."

Good news is also coming in from the National Association of Home Builders (NAHB) that a couple of other leading indicators – the Multifamily Production Index (MPI) and the Multifamily Vacancy Index (MVI) are both strengthening. The MPI, which measures multifamily housing starts, is stronger than it has been since 2007. The MVI, is showing decreasing vacancies in multifamily housing. These indices show an increasing pressure on housing.

Fannie Mae and NAR are both expecting an increase in real estate sales through the end of 2011. Even so, because of the current and expected inventory of foreclosed properties, home prices will probably not be increasing for another 12 to 18 months.

It appears we are at the bottom of the market now. If you intend to buy when the cost of housing is lowest, now is the time to do it.

In another post, I’ll talk about why it makes sense to buy now, even though the prices might not have completely bottomed out. It has to do with price versus cost. . . stayed tuned.


We cannot make good news out of bad practice. – Edward R. Murrow

Rebuilding

I had the opportunity yesterday to watch a video of a presentation that had been given last month in New Orleans at the annual convention of the National Association of Realtors. The subject was the current state of the real estate business, and where it’s going from here. In a nutshell, right now we are in the depths of the valley of despair. The market is in a shambles, and it’s not going to get any better until we – real estate brokers – actively get to work to rebuild it. There is a lot of sense in what the speaker said, and I’ll talk more about his speech in another post.


What he said, though, resonated strongly with me. While I would not say that my career is in the depths of the valley of despair, it is definitely at a low point. It is time to rebuild, which has been somewhat of a theme around here lately.

Of course, building with a plan always makes more sense than just throwing a bunch of stuff together and waiting to see what will survive. The first step in making a plan, is determining what you are really trying to accomplish, and then comparing it to where you are now. For me, the end is still the same as it has always been: I want to be a trusted advisor and consultant rather than a salesman. To that end, I will be working toward strengthening my ability to analyze the financial aspects of real estate transactions to help create situations that make sense for my clients.

A lot has changed in the financing of real estate in the last couple of years, and the effects have been profound. Some folks, in fact, are convinced that real estate is a poor investment now. I don’t think it is; it never has been. The key is finding the way that makes most sense to you. In the next few years, that way is probably going to look very different than it has looked for the last few years. I’ll be talking more in depth about some of these changes in future posts.

The road to success is always under construction. -- Lily Tomlin

Changing directions



 I had started this post talking about the paperwork that I needed to complete in order to get my license reactivated and transferred to the new company, but before that little essay was polished, the transfer came through. Frankly, it gave me pause more than I realized it would. Suddenly, the name of the company I was working for was not my own. It’s been a long time since that was the case.


Those who know me well know that I am, to put it lightly, of the entrepreneurial sort. I like calling my own shots. Those who don’t, shall we say, respect me so much, say I have a problem with authority. Long story short, I don’t really like being told what to do, or how to do it. I would much prefer to make my own way in the world, making my own mistakes along the way and learning from them. I have always liked the freedom of being my own boss. Now, with this new arrangement, there is technically a new boss above me. Why would I do this?

In a word, efficiency.

Trust me, my new broker and I had a conversation about how independent I could be. It’s important to me to be able to deal with my clients as if I owned the business, because really I do.

Part of owning a business, of course, is making it run. There is only so much that one person can do before the time or money is depleted. The harder one works to make the business run, the less time there is to get the clients to work with. It’s a vicious cycle. Doing all the jobs is almost a guarantee that none of them will be completed well.

That can be very frustrating, when one has a clear vision of the business he hopes to build. The destination is always on the other side of a canyon, and the bridge is always under repair. That’s why I was so excited to come across this new firm, Equity Colorado. Their vision of what a real estate brokerage should look like meshes closely with mine, and what’s important is that they have already built it. All that was left for me was to join them, and let them take over all the back-office stuff that was consuming me. Now, I can focus on working with clients, which is what I should be doing. This new arrangement is like finding a brand-new bridge over the canyon, allowing me to get where I want to go with my real estate business.

Yes, it means that my name will no longer be “on the door,” but it means that now I can point my focus where it rightfully belongs. Sometimes, we just need to go a different route to get where we are going.



The hardest thing in life to learn is which bridge to cross and which to burn. -- David Russell